Inuvo Inc (INUV) 2005 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. And welcome to the Miva, Inc. second-quarter financial results conference call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions following the presentation.

It is now my pleasure to turn the floor over to your host, Mr. Peter Weinberg, Vice President of Investor Relations. Sir, the floor is yours.

Thank you. Good afternoon and welcome to Miva's earnings conference call for second-quarter 2005 results. I would like to remind everyone that today's comments include forward-looking statements. These statements are subject to risks and uncertainties that may cause actual results and events to differ materially. These risks and uncertainties will be outlined at the end of this conference call and are also detailed in Miva's filings with the Securities and Exchange Commission.

To comply with the SEC's guidance on fair and open disclosure, we have made this conference call publicly available via webcast at http://www.vcall.com/cepage.asp?id=92889. And a replay of the conference call will be available at the same URL and on the Company website for 90 days after the call.

I would now like to turn the call over to our Chairman and CEO, Craig Pisaris-Henderson.

Thank you, Peter, and welcome to Miva's second-quarter conference call. First off, I'd like to apologize for rescheduling this conference call. But given our early morning settlement, we wanted to insure that the final terms were fully incorporated into our second-quarter financial results.

To begin, as announced earlier today, the Company has reached settlement with Yahoo! regarding our long-standing patent dispute. We anticipate you will have many questions regarding this settlement, and we remind you that we're bound by confidentiality of the agreement and will be unable to comment further than what has already been disclosed. We are pleased to have this behind and eager to move forward.

Regarding the second quarter, first, I would like to spend some time covering the team's successful execution on a number of planned initiatives during the quarter, especially our global rebranding to Miva. Our new brand has been well-received and has effectively unified our global Company. Importantly, our rebranding demonstrates the dedication of our team and our collective ability to remain focused on the path ahead.

Additionally, I would like to speak to industry trends and our competitive positioning as the industry's leading independent player. I will also detail our second-half plan to focus on the opportunities we believe will most effectively leverage our independent position to achieve long-term growth and profitability.

As most of you know, on June 13th, we formally launched Miva, the new name for the former FindWhat.com group. In addition to unifying FindWhat.com, Espotting, Miva Corporation, and Comet Systems under one brand, we launched six new websites for the U.S., U.K., German, French, Spanish and Italian markets.

For our U.S. advertisers, we introduced two fully redesigned applications -- account setup and ad center. For our publishers, we introduced a custom toolbar solution and a new expandable paid listings banner product. Furthermore, we introduced configurable algorithmic search to our distribution partners in Germany and France, two of the more robust markets in Europe. This leverages our previously announced licensing agreement with Fast Search and Transfer.

Finally, in connection with the rebranding, we announced the introduction of our private label offering in Europe and closed our first deal with Eniro in Scandinavia on July 1st.

We are all energized by our accomplishments in the quarter. Our one brand, one mission strategy has assisted us in better defining our global business and has been very well received by all of our stakeholders.

We launched our first formal marketing campaign, refined our communication efforts regarding our differentiating products and took large steps towards developing a full-service platform for our global clients.

As previously announced, starting in late April, we removed certain distribution partners and sub-affiliates of those partners to head develop methods for obtaining users that did not adhere to our distribution guidelines. The removal of these partners and their sub-affiliates impacted our Q2 revenue and will continue to impact revenue over the second half of 2005. However, we believe we have incorporated the impact of this removal effort into our current fiscal year guidance.

Today, we remain committed to leading the industry in defining best practices by working with our partners to deliver high-quality prospects from trusted sources to our advertisers.

We note that several industry participants' recently announced programs to improve their traffic quality. And we are pleased to see the industry is following the leadership role we established through our first quality initiatives that began in the fourth quarter of 2004.

That said, we will remain vigilant and continue to monitor the quality of the sources of our traffic. We're confident in our ability to overcome these industry-wide challenges, and we will continue to deliver a valuable service to our trusted partners and advertisers.

Going forward, we will concentrate on expanding our distribution network through new quality partnerships, in turn, driving high-conversion traffic to our vast network of paid search advertisers. Our path ahead is clear. We understand the key to expanding our distribution is to continue to broaden the suite of customized solutions that enable monetization and user retention for our partners and highlight the fact that we don't compete with our partners. We strive to help them.

Our industry is undergoing a fundamental transformation as publishers increasingly seek to protect the long-term value of their assets, while still availing themselves to the benefits of performance marketing.

Publishers have become weary of relying on single-source, one-site-fits-all solutions offered by our larger competitors. Evidence of this transformation is growing, and it is not limited to our current private label partners, including Verizon, Mitsui and now Eniro, the leading Nordic -- or directory in the Nordic media market in Miva's first private label deal in Europe -- all of whom clearly see the value of our independent status.

Other high-profile publishers also have recently selected Miva to provide for their customized performance marketing solutions. We have had success winning deals in Europe, signing Group Zeta (ph), 20 Minutos, quality channel and express newspapers for example. Evidence of this transformation is not limited to the deals we have signed. We also take note of the major Internet brands like MSN and Ask Jeeves, announcing strategies that reduce or eliminate dependency on the performance marketing solutions of our larger competitors.

It is important that I clarify or clearly define what we mean by independent. Because it is a key attribute that we believe will help us in moving forward. By independent, we mean we do not have a branded destination portal or search engine or shopping comparison site, where we seek to drive Internet users to the detriment of our partners.

Our Miva Direct division does operate own site, and it has millions of one-to-one relationships within users. But that division's primary purpose is to take our knowledge of what the Internet users want and need and use that knowledge to promote the business of our advertisers and partners.

In summary, our solutions enable publishers to monetize their own traffic via our network of paid search advertisers and retain their own end users. While our independent, noncompetitive model assures publishers that we will not simultaneously dilute the value of their content or compete for their users. This is in stark contrast to many of the other companies, which offer paid search.

We believe our publisher-centric positioning combined with our critical mass and global capabilities is a key differentiator from those that are clearly choosing not to pursue long-term beneficial strategies on behalf of their partners. By putting our clients' interests first, providing them with their own branded products and customized solutions that meet the specific needs of their sites and their users, we believe we have an unmatched long-term competitive advantage.

Over the second half of the year, we plan to increase investments into the areas of our business that will best serve our partners, while positioning Miva to take full advantage of the publisher-driven industry transformation. We plan to leverage our unique position as the leading independent player with a growing market by offering an expanded portfolio of services to our trusted traffic partners. We anticipate increasing investments into algorithmic search, technology initiatives, and adding additional team members, while expanding our publisher product suite and developing the infrastructure to support innovative performance search formats.

Overall, our objective is to broaden our distribution segmentation to help our partners better monetize their traffic and retain their end users, while helping our advertisers to achieve higher conversion rates. Ultimately, all of these efforts are in keeping with Miva's commitment of five core values -- independence, infinite growth, service, customization and value.

Now, I would like to turn the call over to our new CFO, Will Seippel, to go over our Q2 financial results.

Will has more than 25 years of financial and operational experience and was recently the CFO for AirGate PCS, a $600 million Sprint affiliate. We are delighted to have someone of his caliber, and we have already seen the benefits of his proven leadership skills, financial experience, and extensive Wall Street experience. Will.

Thank you, Greg. Before I begin, let me just say that I'm very excited to join the Miva team. After completing my first 4 weeks at Miva, I am as optimistic about the opportunity and the future prospects for the Company as I was when I first joined. Why, I've learned a tremendous amount about both our Company and our industry. Please bear with me, as I'm sure I have not become nearly educated enough yet to answer all of the questions you may have.

Before I detail our results, let's review how we measure our financial performance. In addition to GAAP measurements, the Company utilizes certain profitability-based metrics to evaluate our period-to-period and year-over-year performance; they are EBITDA and adjusted EPS. The Company defines EBITDA as net income before interest, income taxes, depreciation and amortization. The Company defines adjusted EPS as EPS before tax-adjusted amortization expense.

With that set, let's discuss our results and expectations. In Q2, we realized revenue of $49 million within our previously issued guidance for 40 million to 50 million. This represents a 76% increase from Q2 2004 revenue of approximately $28 million. On a sequential basis, our revenue was down 9.4 million or approximately 16% from Q1 to Q2.

As previously announced, starting in late April, we began to remove certain distribution partners and/or their sub-affiliate that had developed methods that did not adhere to our distribution guidelines. The traffic purchased from these distribution partners and distribution channels represented a meaningful percentage of daily click-through revenue and was partially responsible for the sequential decline in revenue.

After studying the trends in the quarter, we believe that in addition to our partner removal efforts, our revenue in Q2 was negatively impacted by a decrease in Internet traffic from our distribution partners due in part to decreases in overall Internet traffic generated by certain of our partners, increased competition, and decreased Internet traffic volume from new distribution partners.

The effect of all these changes has been a reduction in our overall click-through revenue. We recorded 217 million paid click-throughs in Q2 compared to 259 in Q1. We anticipate levels of quarterly revenue during Q3 and Q4 will decrease when compared with Q2 when the full weight of events that occurred during Q2 will be reflected in our financial results.

With the benefit of an additional quarter behind us, we have narrowed our expected 2005 revenue guidance from a previously 175 to 200 million to now an expectation of 185 million to 200 million. Operating expenses, excluding the estimated non-cash impairment charge and the patent litigation settlement charge, were 24.4 million in Q2 2005 compared to 9.4 million for the same period in 2004. In the first half of 2005, our ongoing operating expenses were impacted by several factors, including new or expanded investments associated with our global rebranding and algorithmic search technology initiatives.

Certain of our professional costs increased too. We incurred significantly higher accounting fees associated with our audit, financial reviews and Sarbanes-Oxley Act compliance. With the exception of algorithmic search and this related initiatives, we expect the impact from these factors to decline in the second half of the year.

Our Q2 2005 revenue and ongoing operating expenses increased substantially versus the same period in 2004, primarily due to the inclusion of operating results from the merger with Miva Media Europe completed on July 1, 2004.

Amortization expenses in Q2 2005 were at 1.9 million compared to 1.1 million for the same period in 2004. The increase in non-cash amortization expenses from Q2 2004 to Q2 2005 reflects amortization of intangible assets, resulting primarily from the merger with Miva Media Europe on July 1, 2004.

Today, we also announced the Company has reported an estimated non-cash impairment charge related to goodwill and other intangible assets in the amount of $119 million or $3.87 per diluted share. The final measurement of the impairment has yet to be completed in its entirety as of the filing of our 10-Q for the second quarter ended June 30, 2005. Therefore, as permitted by SFAS 142, the estimated impairment charge represents management's current best estimate as to the actual charge, which may be higher or lower than the estimated charge.

Upon finalization of the actual impairment charge in the third quarter of 2005, the Company will record any resulting increase or decrease to the estimated charge. After recording the estimated impairment, the Company's intangible assets decreased with the balance of goodwill being approximately $76 million.

We recorded a GAAP net loss of 125.2 million or $4.08 per diluted share in Q2 2005, which includes the estimated 119 million non-cash impairment charge as well as the tax-adjusted litigation settlement charge. GAAP net loss, excluding the estimated impairment charge and tax adjusted litigation settlement charge, was 1.5 million or a net loss of $0.05 per diluted share compared to GAAP net income of 3.6 million or $0.15 per diluted share for the same period in 2004.

We recorded EBITDA, excluding the estimated impairment charge and the litigation settlement charge, of 1.9 million in Q2 of 2005 compared to EBITDA of 7.6 million for the same period in 2004. We recorded an adjusted net loss, excluding the estimated impairment charge and tax-adjusted litigation settlement charge, of $0.01 per diluted share in Q2 2005 compared to adjusted net income of 17% (ph) per diluted share for the same period in 2004.

At June 30, 2005, our cash and cash equivalents and short-term investments total approximately $50 million consistent with the $50 million reported in Q1 of 2005. This does not reflect amounts due under the litigation settlement. Q2 cash flow from operations was 4.9 million compared to 3.8 million for the same period in 2004 and 3.2 million in Q1 2005.

During my 10-plus years as the CFO for growth companies, I have developed a bit of a reputation for being a cash flow guy. With Miva, I want to assure you that we intend to continue investing for the future, as we did in Q2 and as we expect to do so for the remainder of the year. But we all will seek to balance our growth initiatives with appropriate cost controls.

As Craig mentioned earlier, over the second half of the year, we anticipate increasing investments into algorithmic search technology initiatives, expandishing (ph) our publisher product suite, developing infrastructure to support innovative performance search formats and adding additional team members.

In the short term, the bottle lime will not be the total answer. Instead, we ask you to focus our initiatives for signs of progress. We believe our Q2 rebranding investment represents a step in the right direction. Thank you; this concludes my review of Q2 2005 financial results and FY 2005 outlook. I will now turn the call back over to Craig.

Thank you, Will. We've faced a number of challenges over the last 3 quarters. And while we still have much work to do, we have made steady progress over the last several months. We settled our patent litigation dispute with Yahoo!. We have hired a veteran CFO. We have hired a new auditing firm. We have successfully executed on our global rebranding to Miva. We have signed several high-profile partner deals, including our first private label deal in Europe with Eniro. We have introduced innovative products for our publishers in two fully redesigned applications for our advertisers. And we have taken proactive steps to ensure the quality of our traffic, and we note that several industry participants are now following our lead.

In summary, we're pleased with our success and remain focused on the opportunities that will effectively leverage our independent position to achieve long-term growth and profitability.

That concludes the prepared remarks. We will now turn the call over to the operator for questions.

(OPERATOR INSTRUCTIONS). Eric Martinuzzi, Craig-Hallum Capital.

Without directly approaching the settlements that you have with Yahoo!, I am curious as to what the potential impact is with your private label partners -- your existing private label partners. Does this in any way change that relationship, Craig?

Actually, due to the disclosure agreement that we do have -- the confidential disclosure agreement we have, I really can't comment directly. Although, I did note that those partners have recognized the benefit of working with us.

And then back on the traffic cleaning side, have you taken any steps since the -- just outside of the elimination of those partners -- as far as proactively monitoring, not just your affiliates but your sub-affiliates?

Yes, actually that is an ongoing effort that we have obviously assumed. We're very much willing to take the lead position in doing that. But absolutely, we continue to do that on a global basis.

Specifically, could you just give an example of one or two things you have done?

No, we won't get into specifics. It is very much a part of the strategy -- to make sure that we are doing things that a sub-affiliate network, as an example, would not necessarily know we're doing to make sure we are keeping quality in check. It is pretty much an industry standard approach, if you well.

And then lastly, a percentage of revenue that was international in the quarter?

One moment, let me change.

Eric, it's Phillip. The revenue -- if I just give you the totals -- the revenue from the U.S. side was about 22.4 million. And from the European side, it was about 26.4 million.

Youssef Squali, Jefferies & Company.

A couple of questions. Maybe Phillip, you can address this. How much of the -- I am trying to figure out how much savings the settlement provides. But you're not commenting on the terms. But historically, I think you had said that you'd be spending 1 million to $2 million a quarter in legal fees. That's towards the last couple of quarters you were spending even more. Can you quantify that for us, at least on a historical basis what it was?

No, we really can't, Youssef. We did disclose -- there was an 8-K disclose earlier. There are some things that obviously we need to put into the marketplace. But we really can't comment directly at this point.

No, but historically, have you not spent 1 million to $2 million a quarter on legal fees?

I think over the years -- and this has been a 3-year process -- I think we upped our estimate. It was about $250,000 a quarter. So I think the million dollar number was an annual number. And then as we've gotten closer -- as we got closer to the trial and then into the trial, that number obviously got much higher. So I cannot remember offhand exactly what our annual run rate was. But we did give some numbers for the quarter. I think we lumped it in with the rebranding. The total between rebranding and the litigation expense, that was $3.3 million just in Q2.

We do have some additional rebranding activities -- parties and such. So that is not going to go completely away. But for the most part, litigation expense on this manner should go away. So that is 3.3 million that comes down substantially going forward.

That helps. And then on the Europe versus U.S., could you just talk about the profitability by region? So based on the 22.4 and the 26.4 you just discussed for U.S. and Europe?

It's typically something, Youssef, that we haven't done from the U.S. side. When you start to look at the expenses, for the most part, includes all of that litigation expense -- most of the corporate expense and cost of being a public company. So we haven't in our financial statements or disclosures tried to outline on a pure operating basis where the profitability is or where it lies between the two.

Again from the costs, as we look at the largest costs to run our business, far and away, the payments that we make to our distribution partners and then the second largest -- distant second -- but the second-largest is the basically a cost to our team, compensation expense. And in both of those cases on a percentage basis, costs a little bit higher on the European side. But in terms of actually bringing it all the way down to profitability, we have not done that.

And then I guess just lastly since you mentioned costs on --

Ladies and gentlemen, as a reminder, we ask you to limit yourself to one question. Colin Gillis, Adams Harkness.

Congratulations on a busy summer. Will, can you give us a sense about the accounting fees of the new auditors? Do you expect those directionally to be less?

And Craig, can you just comment -- the inequitable conduct charge, that portion has been drawn, correct?

Yes, I will take the inequitable conduct question first. At this point, we have settled. And all portions of the dispute, if you will, going forward are now is dropped. Will?

The new BDO fees are substantially less than their predecessors.

And just on the segment reporting, will we have some historical data to sync up our models with the new reporting segment that you gave?

I would have to differ that to Peter. I think on the GAAP -- technically on the segment reporting is very, very minor in this segmentation and what we believe is the segment stability of the Company. We will continue to provide it as required by the SEC. But it is a very minor portion of the Company.

Christa Quarles, Thomas Weisel Partners.

I had a couple questions. First on the rebranding, can you highlight -- is it -- the level of spending in which you incurred in the second quarter, if you could maybe even quantify it or indicate whether or not that's sort of level of marketing and promotions spend -- or marketing sales and service the thing you're operating -- or your income statement, whether or not that is supposed to continue throughout the duration of the year?

And then when you do report the Yahoo! royalty, which line item is it going to go into? Is it going to be in your cost of revenues now? Thanks.

I will take the first portion, Christa. Actually no, there was a significant expense for us to go through the rebranding effort on a global basis, and that is not anticipated or contemplated on a go-forward basis. That was both in redevelopment as well as getting media coverage, if you will, on the initial launch just to make sure that that was well-received globally, which it had been. So to be very clear about that -- no, that is not an ongoing expense.

And just to quantify it, I'm calculating about 1.5 million roughly delta between Q1 and Q2 in marketing sales and service. Is that a good estimate for what you guys spent?

Actually, it is baked into the number -- is 3.5., to 3.5 million.

We will put those -- whatever expenses we do have in the future with Yahoo!. They are not to be specified in the cost of goods sold.

And did you experience any change then in the overall TAC rates or meaningful from quarter to quarter?

No, not really.

Richard Fetyko, Merriman & Co.

Craig, could you expand on some of the differentiation initiatives that you have underway, particularly the Fast Search investment? Obviously, it was a pretty good chunk of change that you spent on the technology and the products that you are building on top of that. How is that coming along? And when do we expect some material impact perhaps? What format or shape would that material impact be? Would it be more distribution behind different kind of distribution and so forth?

I guess a couple of points there. One, I think it's somewhat obvious at this point that there are a number of companies in the marketplace that are now looking for a way to be competitive in the performance-based marketing sector without necessarily partnering with people that are directly competitive with them. While that may sound a bit confusing, it really comes down to a number of publishers and content owners are looking to get into this space in a not competitive form. But you really need to be a meaningful partner of theirs, if you will. In order for you to be able to work with them in entirety, you really need to have the full solution.

So we looked at the algorithmic sort of a portion of debt (ph) -- or the algorithmic service that Fast Search and Transfer provides and partnering up with them. And it is a significant investment. We've actually now launched in both France and Germany and started to work with partners with basically small directories in those markets. It is available in the UK market as well if you want to just go to the website to take a look; although, it is not something that we have gone out with on commercially yet. But we are making it available via the website if you go to Miva.com, and go to the UK portion.

But nevertheless, we feel that's a huge part of our strategy. We have to be able to provide a full solution to publishers so that if their users do want to do a generic search, well, we can provide that for them as well. As well as in clearly, we are going to be able to provide the e-commerce portion. We are anticipating continue to invest in those publishers' solutions throughout the end of the year. So in second half of the year, that will be continued investment. And we do believe that will pay dividends as we go into '06 and '07.

Jason Avilio, First Albany Capital.

A couple questions. Number one, I think you guys commented that TAC expenses been relatively flat. I am wondering if you could comment on what you expect to see TAC due on a go-forward basis.

And then secondly, earnings per share, wondering if we can expect to see profitability on either an adjusted EPS or on an EBITDA basis over the next couple of quarters? Thanks.

On the TAC question, we've always given that we anticipate TAC going up slightly or nominally on a go-forward basis. While that hasn't always proven to be true, in fact, if you go back -- let's go back 8 quarters ago or so or quite frankly even further back and look on a quarter-over-quarter basis. We have always given guidance that it could go up 100, 200 basis points because we felt that was prudent to do.

Quite frankly, we are going to stay in the same position because we do believe that that could be the effect that the marketplace continues to mature. So nevertheless, that will be the consistent guidance. Although, as mentioned earlier on this call, it remains relatively stable over the past -- oh, quite frankly passed few years.

In regards to the guidance, I would have to say we -- as you guys know, we were in negotiations to early this morning with Yahoo! on this. It obviously did not impact my ability to -- I will give the guidance on the revenue number, which I did. But it does have some impact on other items going forward. So I will be back with you at the end of the quarter, and I will obviously have that all that understood and worked in. But I want to make sure I give you a complete answer when we go there.

Marianne Wolk, Susquehanna.

I had a couple of quick questions. First of all, it looked like your click-throughs dropped about 16% sequentially. And I know you said international media primarily was down 15%. Can you give us a sense of whether the U.S. media declined even more than the 15% we saw with international media? And/or was pricing up a little bit in the quarter?

Can explain -- are you just relicensing the Fast Search algorithmic technology to clients? Or are you investing your own R&D around it to improve its performance?

It is Phillip. I will take the first question. The U.S. revenue, I think somebody asked the question about segmentation, which is really the difference between the software business, the Miva small-business or Miva Merchant software versus the media business, which is the vast, vast majority of what we do.

On the U.S. side, we have the Miva Media business, which used to be called the FindWhat network. We've got Miva Direct, which used to be called Comet. And that is our -- either two of ours or other relationships we have one-to-one with end users.

So when we group all of that together in the U.S., I think if you break out Miva Media, which we don't do, that would have had a larger decline on a percentage basis from Q1 to Q2, the knee (ph) overall U.S. number.

In terms of pricing, again, it is always a tricky question in terms of average revenue per quick. Just because we are in so many different markets, and trends depend both on the market that we are in and the mix of partners that we have. But overall, I think the fact that we have taken action with respect to the quality of the traffic, I think that has been appreciated by advertisers. I think we've seen some positive results in terms of their feedback to us as to their conversion rates and the return on investment that they are getting from our network.

And again, our view is that over the long term, we want to just -- that's the ultimate goal we have to have. And to that -- that naturally should help us increase the average bid amount.

On the Fast side, I will turn it over to Craig.

If I understand your question, it was -- are we leveraging our own internal R&D and incorporating that with Fast -- that being the question. Yes, we are doing that. In fact, we are working with Fast on general algorithmic solutions, but we do have a team, Andrew -- actually, we issued a press release not too long ago. A gentlemen, Dr. Andrew Ressler, heads up that team out of our Boston office. And we are looking at how we can further incorporate both what we license as well as some of the proprietary content that we have in-house into a combined solution for the marketplace and contains -- provide a good value product, if you will, for our partners.

Jordan Rohan, RBC.

A clarification, are you marketing the Fast Search and Transfer technology in the U.S. alongside your U.S. commercial search? The announcements you made so far have mostly to do with Europe.

And then secondly, on the revenue guidance, it looks like at the midpoint of your range, you are calling for a sequential downtick in revenues in 3Q, at least assuming that 4Q is bigger than 3Q seasonally. Is that fair to assume? Thank you.

On the Fast, just for the clarification, Jordan, we had not launched anything in the U.S. marketplace as yet. The only thing that we have spoken to or the only launch that we have spoken to to date have been our European launches. The partnerships and the opportunities we believed were of higher probability, if you will, by focusing on those marketplaces first.

In terms of the revenue guidance, Jordon, yes, some of the events that reduced revenue from Q1 to Q2 sort of hit towards the middle of the quarter. So Q3 will be the first quarter where we see the full impact of that. So as a result, seasonality is also playing in there. But the main sort of move as you go from Q2 to the second half of the year, Q2, we would expect would be greater revenue than Q3 or Q4. Just because we had some of that traffic in Q2, it wasn't until Q3 that you see a full quarter of those events.

Michael Prestile (ph), ThinkEquity Partners.

High guys this is Michael Prestile. I am calling for Stewart Barry. A couple questions -- have you seen or witnessed any emerging ad categories that were a little stronger in the quarter than were in the past?

And also, have you seen or witnessed any competitive environment change at all with respect to your distribution partnership arrangements?

I will take both of those. Over the summer, we were really more concentrated internally to be very candid with you in terms of what we needed to do to provide high-quality traffic than trying to inflate or capitalize on any specific verticals. But over the summer as everyone has probably anticipated, you do see an increase in a nice or steady flow, if you will, for participation in the travel industry.

In terms of competitiveness in the marketplace, we've had a couple of questions about a new product that was just launched that goes out to some of the smaller players, some of the smaller publishers. And it is interesting. It has always been a competitive marketplace. And not being the company that goes out more or less leading with our consumer-facing brand, I cannot say that the competitiveness or the competitive factors in the marketplace have changed all that much.

But nevertheless, it is interesting that the marketplace is maturing a bit, if you will, on just the general or the generalized pay-per-click products. We think it is imperative to continue to be innovative with this. As an example, we have announced that we've come out with a banner solution that is helping our partners fully monetize the entire base. So we are basically seeing effective CPMs increase from a full page monetization perspective.

But nevertheless, we believe going forward from a competitive standpoint really is going to come down to -- from our perspective that is -- come down to being a noncompetitive solution that can help them fully monetize their page.

And as you are fully aware, we have also launched our pay-per-call product in the U.S. marketplace with full intentions and actually have publicly acknowledging our intentions of launching that product in the European marketplace in the near term as well. So we are going to continue to concentrate on having multiple products and services, so we can help global publisher partners monetize their pages in the entirety -- or in their entirety.

Youssef Squali, Jefferies & Company.

Just a quick question for Craig. Have you seen any empirical evidence or indication that algorithmic search actually helps you gain distribution partnerships?

Obviously, not having it in the past, we would not have our own empirical evidence, if you will, that would represent that. In fact, as Youssef, as you are well aware for many years, we chose not to an algorithmic solution. Because most of our partners that we serves either had easy access to it from third parties, if you will. Or quite frankly, just did not need it because the vast majority of their users were e-commerce oriented, not really information based.

So with that being said, going forward, we are concentrating on publishers that have the full need, if you will. So in terms of empirical evidence -- no, not necessarily because that has not been our focus. Going forward, we know that is a solution they need. In fact, we would go so far as to say some of our existing partners that we've recently brought on board over the last couple of quarters have made that very clear to us that that is something that is of large need to them. So we are going to continue to invest in that area, if you will, so we can deliver that full solution.

Richard Fetyko, Merriman & Co.

I just wanted to follow-up on that, Craig, if you just could give us an idea of what type of distribution you could go after with this technology with the applications that you are going to build on top of that Fast Search technologies? Is it a particular vertical or maybe vertical type of search engines? Are they search engines or more a content size portals, shop of compression size, so forth -- if you could just give us an idea of what type of distribution verticals you're going to go after.

Well, the simple answer would be yes. We believe that going forward in the marketplace or the full solution allows us to work really in any vertical print. What we are all seeing right now -- and I believe this is going to be an ongoing trend -- you'll see different verticals really recognizing or realizing their need to be more competitive on an independent basis rather than relying on large competitors, if you will.

But right now, we are seeing large content owners and publishers really focusing on the marketplace and needing that full solution. And again, until just recently, literally the last 2 quarters, we have not had the ability to step up, if you will, and help them with a full solution sale.

I would say near term, we will focus on content owners and publishers, large global publishers if you will. Going forward, I think you're going to see us be a meaningful, viable competitive player if you will in all market sectors. I'm just -- quite frankly, each market sector needs a full solution, not just one or the other.

There are no further questions. At this time, I would now like to turn the floor back over to Mr. Peter Weinberg for any closing remarks.

Thank you. This conference call contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Words or expressions, such as plan, intend, believe, or expect or variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may vary materially from the expectations contained in the forward-looking statements.

Key risks are described in Miva's reports filed with the U.S. Securities and Exchange Commission, including the Form 10-KA for fiscal 2004 and its most recently filed quarterly report on Form 10-Q.

In addition, past performance cannot be relied upon as a guide to future performance. The following factors among others could cause actual results to differ materially from those described in the forward-looking statements. Potential that the information and estimates used to predict anticipated revenues and expenses were not accurate; the risks associated with the fact that we have material weaknesses in our control over financial reporting that may prevent us from being able to accurately report our financial results or prevent fraud; the risk that we have in the past and may in the future incur goodwill impairment charges that materially, adversely affect our earnings and their operating results; potential that demand for our services will decrease; the risk that we will not be able to continue to enter into new online marketing relationships to drive qualified traffic to our advertisers; the risk that our distribution partners will use unacceptable means to obtain users; risks associated with our ability to compete with competitors and increased competition for distribution partners; political and global economic risks attendant to our business; risks associated with legal and cultural pressures on certain of our advertisers' service and/or product offerings; other economic business and competitive factors generally affecting our business; the risk that operation of our business model infringes upon the intellectual property rights held by others; our reliance on distribution partners for revenue-generating traffic; risks associated with our expanding international presence; difficulties executing integration strategies or achieving planned synergies with acquired businesses and private label initiatives; the risk that we'll not be able to effectively manage our growth; the risk that new technologies could emerge, which could limit the effectiveness of our products and services; risks associated with the operation of our technical systems, including system interruptions, security breaches, and damage; risks associated with Internet security, including security breaches -- which if they were to occur -- could damage our reputation and expose us to loss or litigation; risks relating to regulatory and legal uncertainties, both domestically and internationally.

That concludes our call today. Thank you for listing.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. And have a wonderful day.